GCE

AS and A Level Specication

Economics
For exams from June 2014 onwards
For certification from June 2014 onwards
GOE Econom|cs for exams from June 2014 onwards (vers|on 1.4}
18
3.4 n|t 4 EOON4 Econom|cs: The Nat|ona| and lnternat|ona|
Economy
n|t 4 |s synopt|c.
lt |s assumed that the know|edge and sk|||s cand|dates have acqu|red |n other un|ts w||| be used to cons|der
concepts, theor|es and |ssues |ntroduced |n th|s un|t. Oand|dates are expected to deve|op further the|r cr|t|ca|
approach to econom|c mode|s and methods of enqu|ry. They shou|d be ab|e to ana|yse and eva|uate econom|c
mode|s |n wr|tten, numer|ca| and graph|ca| forms.
Oand|dates shou|d be ab|e to app|y the AD/AS ana|ys|s from n|t 2 to the |ssues ra|sed |n th|s un|t. They shou|d
be ab|e to ana|yse and eva|uate the causes of changes |n macroeconom|c |nd|cators |n greater depth than
expected at AS |eve|. There |s an emphas|s |n n|t 4 on the consequences of changes |n macroeconom|c
|nd|cators.
lt |s expected that cand|dates w||| acqu|re a good know|edge of trends and deve|opments |n the economy
wh|ch have taken p|ace dur|ng the past ten years and a|so have an awareness of ear||er events where th|s
he|ps to g|ve recent deve|opments a |onger term perspect|ve.
Oand|dates shou|d apprec|ate the ways |n wh|ch deve|opments |n the n|ted K|ngdom economy can be re|ated
to the g|oba| and European n|on (E} contexts.
Examp|es of |ssues wh|ch cou|d be exam|ned |n the g|oba| context are the |mpact of Oh|na`s recent |ndustr|a|
deve|opment on the K economy or the consequences for the K economy of |ncreased |nward |nvestment by
mu|t|nat|ona| compan|es.
Examp|es of |ssues |n the EU context are the |mp||cat|ons for the K economy of E en|argement or the
poss|b|e consequences of postpon|ng a dec|s|on on K membersh|p of the S|ng|e European Ourrency.
Oand|dates shou|d be prepared to propose, ana|yse and eva|uate poss|b|e so|ut|ons to macroeconom|c
prob|ems. They w||| be requ|red to assess the |mpact and effect|veness of current government po||c|es to dea|
w|th these prob|ems as we|| as cons|der|ng a|ternat|ve po||c|es.
3.4.1 Macroeconomic lndicators
The Econom|c Cyc|e
and Econom|c Growth
Oand|dates shou|d be ab|e to ana|yse and eva|uate the causes of changes |n the
var|ous phases of the econom|c cyc|e, |nc|ud|ng demand-s|de and supp|y-s|de
shocks.
Oand|dates shou|d be ab|e to ana|yse and eva|uate the supp|y-s|de factors that
are ||ke|y to determ|ne the |ong-run trend rate of growth, such as |nvestment,
techno|ogy, educat|on and tra|n|ng.
Oand|dates shou|d be ab|e to ana|yse and eva|uate the var|ous costs and
benefts of econom|c growth. There shou|d be the ab|||ty to d|scuss whether or
not econom|c growth |s susta|nab|e and to eva|uate the |mpact of growth on
|nd|v|dua|s, the economy and the env|ronment.
Uses of Nat|ona|
Income Data
Oand|dates shou|d be ab|e to d|scuss the use and ||m|tat|ons of nat|ona| |ncome
data to draw conc|us|ons on ||v|ng standards. They shou|d be ab|e to |nterpret
d|fferent types of econom|c data, such as the Human Deve|opment lndex, and
use them to compare the ||v|ng standards of the res|dents of d|fferent countr|es.
They shou|d be ab|e to d|scuss the ||m|tat|ons of us|ng such data to arr|ve at
conc|us|ons.
Unemp|oyment Oand|dates shou|d be ab|e to ana|yse and eva|uate the causes of unemp|oyment
and the consequences for |nd|v|dua|s and the performance of the economy.
They shou|d understand the concept of, and the factors wh|ch determ|ne, the
natura| rate of unemp|oyment and both the short-run and |ong-run Ph||||ps curves,
and be ab|e to d|scuss the |mp||cat|ons of these for econom|c po||cy.
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GOE Econom|cs for exams from June 2014 onwards (vers|on 1.4}
19
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Inat|on and Deat|on Oand|dates shou|d have an understand|ng of how |ndex numbers are ca|cu|ated
and used to measure changes |n the pr|ce |eve|. A|though a deta||ed techn|ca|
know|edge |s not expected of |nd|ces such as the Reta|| Pr|ce lndex (RPl} and
Oonsumer Pr|ce lndex (OPl}, cand|dates shou|d have an awareness of the
under|y|ng features, for examp|e, the Fam||y Expend|ture Survey, the concept of
the 'average fam||y`, the basket of goods and serv|ces, and we|ght|ng.
Oand|dates shou|d be ab|e to ana|yse and eva|uate the causes of changes |n the
pr|ce |eve| and the consequences for both |nd|v|dua|s and the performance of the
economy, |nc|ud|ng the potent|a| |mpact of a r|s|ng or fa|||ng pr|ce |eve|.
There shou|d be an understand|ng of F|sher`s equat|on of exchange and the
Ouant|ty Theory of Money |n re|at|on to the monetar|st mode|.
The poss|b|e re|evance of expectat|ons to changes |n the pr|ce |eve| shou|d be
understood.
3.4.2 Managing the National Economy
Macroeconom|c
Mode|s and Po||c|es
Oand|dates shou|d be ab|e to use macroeconom|c mode|s, |nc|ud|ng the AD/
AS mode|, to ana|yse the causes of poss|b|e conf|cts between po||cy object|ves
|n the short run and |ong run. They shou|d be ab|e to d|scuss approaches to
reconc|||ng these conf|cts and the monetar|st/supp|y-s|de v|ew that the major
macroeconom|c object|ves are compat|b|e |n the |ong run.
There shou|d be an awareness of the changes |n monetary and fsca| po||cy wh|ch
have occurred |n the |ast ten years or so.
F|sca| Po||cy Oand|dates shou|d be ab|e to d|scuss the |ssue of the budget ba|ance and be
ab|e to eva|uate the poss|b|e econom|c consequences of a budget defc|t or
budget surp|us and the poss|b|e correct|ve measures.
They shou|d be ab|e to assess the econom|c s|gn|fcance of changes |n the |eve|
and d|str|but|on of pub||c expend|ture.
They shou|d be ab|e to ana|yse and eva|uate the m|croeconom|c s|gn|fcance of
taxat|on and the var|ous ro|es and re|at|ve mer|ts of the d|fferent K taxes. There
shou|d be an awareness of the taxat|on pr|nc|p|es wh|ch are ||ke|y to under||e a
taxat|on system, such as the ab|||ty to pay and the |mpact on |ncent|ves.
There shou|d be an awareness of the |ntroduct|on of fsca| ru|es such as the
Stab|||ty and Growth Pact w|th|n the euro area.
Oand|dates shou|d be ab|e to assess the econom|c s|gn|fcance of changes |n the
|eve| of the nat|ona| debt.
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(*1;.$*9$ ")$, #+$ 83##$,* "1 $9"*"/(9 39#()(#>?
Supp|y-S|de Po||c|es Oand|dates shou|d deve|op a more soph|st|cated understand|ng of supp|y-s|de
po||c|es us|ng A2 concepts such as progress|ve taxat|on and the natura| rate of
unemp|oyment. They shou|d understand the contr|but|on of supp|y-s|de po||c|es
to the management of the economy and to ach|ev|ng part|cu|ar macroeconom|c
po||cy object|ves.
They shou|d a|so apprec|ate that supp|y-s|de po||c|es, such as tax changes,
pr|vat|sat|on and |abour market reforms, can have m|croeconom|c as we|| as
macroeconom|c effects.
GOE Econom|cs for exams from June 2014 onwards (vers|on 1.4}
20
Monetary Po||cy, the
Money Supp|y and
Interest Rates
Oand|dates shou|d be ab|e to bu||d on the|r know|edge of the ro|e of the Monetary
Po||cy Oomm|ttee (MPO} of the Bank of Eng|and from n|t 2 and be ab|e to
d|scuss how the Bank can |nfuence the money supp|y (|nc|ud|ng quant|tat|ve
eas|ng} and the rate of |nterest. ln part|cu|ar, they shou|d be aware of the
object|ves of monetary po||cy. They shou|d be ab|e to |dent|fy and exp|a|n the
|nstruments of po||cy wh|ch are current|y emp|oyed by the Bank of Eng|and to
ach|eve the |nfat|on target set by the government.
Oand|dates shou|d understand how the demand for, and supp|y of, funds |n
d|fferent markets affect |nterest rates. Oand|dates shou|d have an understand|ng
of the factors cons|dered by the MPO when sett|ng |nterest rates.
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$78$9#$4?
Exchange Rate Po||cy Oand|dates shou|d understand the re|at|onsh|p between |nterest rates and the
exchange rate and how the exchange rate m|ght be an |nfuence on po||cy
object|ves such as pr|ce stab|||ty and unemp|oyment.
3.4.3 The lnternational Economy
G|oba||sat|on Oand|dates shou|d have an understand|ng of the causes of g|oba||sat|on, |ts ma|n
character|st|cs, and the d|fferent consequences for deve|op|ng and for deve|oped
countr|es. There shou|d be some understand|ng of the ro|e of mu|t|nat|ona|
corporat|ons |n the deve|opment of g|oba||sat|on.
Trade Oand|dates shou|d understand the mode| of comparat|ve advantage, the
d|st|nct|on between comparat|ve and abso|ute advantage, and be ab|e to use
a s|mp|e numer|ca| examp|e to |||ustrate th|s d|st|nct|on. They shou|d be ab|e to
eva|uate the |mportance and ||m|tat|ons of these concepts as we|| as d|scuss the
costs and benefts of trade genera||y.
There shou|d be an understand|ng of the reasons for changes |n the pattern of
trade between the K and the rest of the wor|d, as we|| as the potent|a| costs and
benefts of trade for an economy. Oand|dates shou|d a|so be ab|e to d|scuss the
nature and |mportance of trade between deve|oped and deve|op|ng countr|es for
both part|es.
There shou|d be an awareness of the extent of progress towards free trade
|n recent years, espec|a||y through the ro|e of the Wor|d Trade Organ|sat|on
(WTO}. Equa||y, cand|dates shou|d understand the causes and consequences of
protect|on|st po||c|es such as tar|ffs, quotas and export subs|d|es.
The Ba|ance of
Payments
Oand|dates shou|d know the d|fference between the current and cap|ta| and
fnanc|a| accounts on the K ba|ance of payments.
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1;":0 0+".;4 <$ .*4$,0#""4?
An understand|ng of the |mportance of the O|ty of |ondon to the trade |n fnanc|a|
serv|ces shou|d be conveyed to cand|dates.
Oand|dates shou|d understand the poss|b|e s|gn|fcance of defc|ts and surp|uses
for an |nd|v|dua| economy. They shou|d a|so understand the poss|b|e |mp||cat|ons
for the g|oba| economy of a major economy or econom|es w|th |mba|ances
dec|d|ng to take correct|ve act|on. Oand|dates shou|d a|so be ab|e to ana|yse and
eva|uate measures wh|ch may be taken to dea| w|th ba|ance of payments defc|ts
or surp|uses.
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GOE Econom|cs for exams from June 2014 onwards (vers|on 1.4}
21
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Exchange Rate
Systems
Oand|dates shou|d understand how exchange rates are determ|ned |n both
fxed and foat|ng exchange rate systems (whether comp|ete|y free or managed
per|od|ca||y by the author|t|es}.
Oand|dates shou|d be ab|e to eva|uate these exchange rate systems and have an
understand|ng of the|r |mp||cat|ons for the management of the domest|c economy.
The European Un|on
(EU|
Oand|dates shou|d have an e|ementary understand|ng of the |nst|tut|ona| structure
of the E, notab|y the ro|e of the European Oomm|ss|on and the European Oentra|
Bank.
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Oand|dates shou|d be ab|e to d|scuss the ma|n features of customs un|ons and
understand the s|gn|fcance of the E as a customs un|on. The E as a customs
un|on shou|d be cons|dered |n re|at|on to the S|ng|e European Market (SEM}.
Oand|dates shou|d have an apprec|at|on of the potent|a| |mpact on the K
economy of E en|argement.
They shou|d be ab|e to eva|uate Econom|c and Monetary n|on (EM} and the
s|ng|e European currency |n the context of the debate over K membersh|p.